Why Spending More for Local Goods Harms the Economy

The following article by Linn and Ari Armstrong originally was published May 27 byGrand Junction Free Pressunder the title, “Channel 11 piece peddles economic nonsense.” Stay tuned for a related update about the views of Denver mayoral hopeful Michael Hancock.

If Bernie Lange had taken to the airwaves to promote therapeutic magnetic underwear or report alien anal probes, he rightly would have been laughed off the station. But apparently peddling economic nonsense fits perfectly well with the editorial policies over at Channel 11 News, the local NBC affiliate.

Last week the station broadcast the segment “Made In America,” a silly editorial masquerading as news that falsely argues buying overpriced American products creates jobs. Spending less for the same products made overseas, Lange intones sinisterly, costs Americans not only jobs but “billions in lost dollars.” That’s due to “the multipliers,” you see.

Thankfully, French economist Frédéric Bastiat* exposed Lange’s brand of foolishness way back in 1845 in his “Candlemakers’ petition.” To update the example, consider an obvious way to create jobs galore for manufacturers of light bulbs and the electricity required to run them. Simply block out all sunlight from your home. Board up all the windows. Think of all the American jobs we’d create if we all followed that one simple step. Say no to extraterrestrial sunlight!

Or consider the blight of foreign-made bananas and coffee. Scandalously, Americans tend to buy both those products from Central and South America. Think of all the American jobs we could create if we bought those goods only from U.S. suppliers, or better yet Colorado suppliers.

Impossible, you say? If you check out the web page of Denver Botanic Gardens, you will discover the center currently grows bananas, coffee, and chocolate right here in Colorado (as one of our friends pointed out). No doubt we could grow all those things locally if farmers spent enough on greenhouses and heaters.

Sure, the products would cost more, but just think of “the multipliers!” We could add billions upon billions of dollars to our economy just by spending more on the goods we consume every day. Indeed, by Lange’s logic, the more we spend, the more we prosper!

Clearly there’s something wrong with Lange’s reasoning. To get a better idea of the problem, consider Bastiat’s wisdom about the seen and the unseen. Bastiat writes, “The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”

What Lange sees are the manufacturing jobs lost. What Lange ignores are the exporting jobs created and the additional wealth made possible by trade.

Lange sees that spending more money on American-made products would contribute to the paychecks of American workers. Lange ignores the fact that spending more money on the same goods would deprive other businesses of those dollars. If you spend more money on toys and household items, you have less to spend with the local fruit grower or massage therapist.

Let’s get back to basics. Why should we trade at all? Why shouldn’t each individual produce everything he needs, all by himself? The answer should be obvious: everyone would become horrifically poor, and only a tiny fraction of today’s population would manage to survive at all. Just imagine making all your own clothes, growing all your own food, building your own shelter, and acting as your own dentist.

By trading, we benefit from other people’s skills, expertise, accumulated machinery, and natural advantages. Why does Lange think it’s any different when we trade with people in other towns, other states, or other nations?

China features lots of cheap labor. We would be fools not to take advantage of that. America, on the other hand, features lots of complex machinery and other capital goods made possible by industrialization and relative economic liberty. That’s why (as the CIA reports) per capita product in China is around $7,400 annually, whereas in the United Statesit’s $47,400.

If we stop buying stuff that China’s relatively good at making, that means we have to make stuff that we’re relatively bad at making. Such a policy is self-destructive. Buying cheap goods from China and elsewhere allows American workers to specialize on the things they make best.

Of course, it is worth looking into artificial reasons why some American companies move overseas, including high tax rates and business-crushing union policies. We should also explore the reasons for continued high domestic unemployment, particularly the Obama administration’s policies of blowing out the deficit and meddling in the economy. But let’s fix the underlying problems, not succumb to economic fantasies.

We doubt very seriously that Bernie Lange or anyone else at Channel 11 makes much of an effort to buy only American-made goods. And they’d be foolish to do so. Trade is all about specialization according to one’s strengths. We hope, therefore, that Channel 11 sticks to reporting the news and leaves the economic commentary to people like Bastiat.

* Note: I was paid a modest sum to help run Liberty In the Books, which has reviewed select works of Bastiat.

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Elisheva Hannah Levin commented June 2, 2011 at 8:35 AM
I agree, should the local goods be identical to those from elsewhere. After all, I enjoy coffee as much as most Americans do. My caveat, is that often locally produced food is fresher and/or is produced in ways that make it tastier than mass produced food that is shipped in. And in many cases, such as the one of corn-fed beef in CAFO’s, the real cost is obscured because the federal government subsidizes the production of the corn heavily, and the cost to defend oil sources (need for transportation of feed and of product) is never factored in. Since this makes the American food supply chain an artificial economy, most people do not really know what the true cost of “cheap” food is, and how they are paying for it.
Sadly, although the term “free market” should be a redundancy, the understanding of the term “market” is so poor for most consumers, that we have to say it. Free markets, for all goods, across all boundaries produces a vital economy.